Announcement

Collapse
No announcement yet.

Help me understand [you guessed it: rent vs buy]

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Help me understand [you guessed it: rent vs buy]

    Please help me understand why we shouldn't go this route. Finishing residency and moving to MCOL area. Contracted to be here at least 3 years, but path to ownership is clear and I'm all but certain we will be here long term. Qualified for physician loan for 100% financing at 2.625% rate for a 10/6 arm. This house will most likely be our 5-7 year house before we move into the doctor house. Monthly payments will be well below what we could get renting even after factoring in property taxes and home insurance. Closing costs will be around $7k. I guess I just don't see a down side here when comparing this route versus renting. Costs upfront are low due to physician loan, monthly payments are less than renting, the area we're moving to is growing like crazy so it seems like the value will only increase. I understand wci preaches rent in the beginning but this sure feels like a no-brainer to me. What am I missing?

    -Student loan debt: $215k, no other debt
    -Income $300k-350k (salaried vs production, whichever is greater)
    -Mortgage amount we're looking at is in $450-515k range
    Last edited by Pedsdent0123; 03-13-2021, 07:39 AM.

  • #2
    $7k in closing costs seems high unless that includes the first month mortgage payment.

    You will have to sell the home so factor 6% selling cost to brokers.

    Stuff breaks. HVAC, roof, plumbing. Less commonly foundation/bad drainage. Check if you are on sewer or septic. Hire a good home inspector and accompany him/her on the inspection. Budget in exterior painting ~5 years.

    There is yard/landscaping costs. HOA fees?

    Comment


    • #3
      Yes you'll probably be fine. Especially:

      If that first house is in, in fact, where you want to be for several years
      If the contract works out
      If you like the practice/town

      Like I said in the other recent thread: a) you gotta live somewhere b) "value will only increase" is always what happens until it doesn't.

      Comment


      • #4
        is a15 yr fixed option available? interest rate risks and all that.

        Comment


        • #5
          Originally posted by Pedsdent0123 View Post
          Please help me understand why we shouldn't go this route. Finishing residency and moving to MCOL area. Contracted to be here at least 3 years, but path to ownership is clear and I'm all but certain we will be here long term. Qualified for physician loan for 100% financing at 2.625% rate for a 10/6 arm. This house will most likely be our 5-7 year house before we move into the doctor house. Monthly payments will be well below what we could get renting even after factoring in property taxes and home insurance. Closing costs will be around $7k. I guess I just don't see a down side here when comparing this route versus renting. Costs upfront are low due to physician loan, monthly payments are less than renting, the area we're moving to is growing like crazy so it seems like the value will only increase. I understand wci preaches rent in the beginning but this sure feels like a no-brainer to me. What am I missing?
          - wouldnt do ARM
          - what is your debt burden?
          - what is your income?
          - what is your mortgage amount?

          buying isnt always wrong. one just has to go in eyes wide open and realize the risks associated.

          Comment


          • #6
            Originally posted by Pedsdent0123 View Post
            Please help me understand why we shouldn't go this route. Finishing residency and moving to MCOL area. Contracted to be here at least 3 years, but path to ownership is clear and I'm all but certain we will be here long term. Qualified for physician loan for 100% financing at 2.625% rate for a 10/6 arm. This house will most likely be our 5-7 year house before we move into the doctor house. Monthly payments will be well below what we could get renting even after factoring in property taxes and home insurance. Closing costs will be around $7k. I guess I just don't see a down side here when comparing this route versus renting. Costs upfront are low due to physician loan, monthly payments are less than renting, the area we're moving to is growing like crazy so it seems like the value will only increase. I understand wci preaches rent in the beginning but this sure feels like a no-brainer to me. What am I missing?
            Can you be specific regarding your numbers and assumptions?

            Comment


            • #7
              If you end up staying in the house for 5 to 7 years, this will likely work out fine without any major financial losses to you.

              Selling costs average 10% of the home value. If you sell in 5 years and inflation is 2% per year in home values, you will be able to sell with no financial gain or loss, you are just out what you paid for property taxes, maintenance, mortgage interest, principal payments, and utilities.

              Home values are in a buying frenzy right now, and no one knows what the future holds. Prices could continue to rise, or they could fall or even plummet like they did in 2008. On average, home prices go up at the inflation rate over the long run, but they have huge gyrations over the shorter term.

              Please be aware, with a zero down loan you initially become a prisoner in that house. If you don't like the job, if your marriage doesn't work out, or if you want to move for any reason whatsoever, plan on bringing 10% of the value of the home in cash to the closing table. So if you are looking at a 300k home, you will need to pay $30,000 to sell it if you cannot get a contract for more than you paid for the house. Let's consider mortgage rates go up to 6%, the inflated asset conditions that exist today end, and you can only sell the home for 250k. You would then need to bring $80,000 to the closing table to allow you to sell the house ($30k in selling costs and $50k to pay off the bank). If you don't have the cash available to pay at closing, again you are a prisoner to the house and you cannot sell it. 50% of new attending physicians decide to make a change and end up leaving their first job. Do you have enough knowledge to know that this possibility does not apply to you?

              We signed the contract to buy our first house 10 months after finishing fellowship. I knew I liked the job and I ended up staying in that job for decades. It worked out well for us.

              An unfortunate friend signed a non-compete with his group, hated the job, and was forced to move out of state due to the onerous non-complete. He sold his newly purchased home for a huge loss after only 1.5 years. It was a very painful time for them, the bad group, an abusive call schedule that he was trying to endure, the huge financial hit to sell the new home, and the forced move far away from family to regain his professional sanity.

              Best of luck with your decision!

              Comment


              • #8
                Originally posted by Peds View Post

                - wouldnt do ARM
                - what is your debt burden?
                - what is your income?
                - what is your mortgage amount?

                buying isnt always wrong. one just has to go in eyes wide open and realize the risks associated.
                - I've been back and forth about ARM, but I feel like it may not be a bad route considering we'd only be in this house for 5-7 years. Interest rates are lowest with the ARM, so why not ARM?
                -Student loan debt: $215k, no other debt
                -Income $300k-350k (salaried vs production, whichever is greater)
                -Mortgage amount we're looking at is in $450-515k range

                Comment


                • #9
                  The main thing that you have wrong is the assumption that you will finish your 3 year contract there and want to stay beyond. A purchased house will tilt any decision about staying or going into staying and could more adversely effect your financial career then the loss associated with just buying the place and moving. It's pretty easy to see from the outside: lets say that there is better job in the next town for you or your spouse that pays 20K more. It's in a better town, closer to family, etc. If you decide to pass on the opportunity because you are into this 5-7 year plan and you would end up losing money by selling your house 2 years after you just moved in, you will actually have ended up losing money in the long run. You could end up doing ok if everything turns out as you expect but most people do not stay in their first job and having a rental instead of owning ends up being a huge benefit when you are contemplating if you should move. There are too many variables occurring after residency to predict where you will be in 5-10 years.

                  Comment


                  • #10
                    The biggest issue is:
                    Will they like you? Will you like them?
                    If either of these is a "no" you have just lost a huge chuck of change. Especially with 0% down.
                    I'd rent for at least 6-12 months. You can always buy after that.
                    I also agree... hard to say when you haven't give us your numbers.

                    Comment


                    • #11
                      Originally posted by White.Beard.Doc View Post
                      If you end up staying in the house for 5 to 7 years, this will likely work out fine without any major financial losses to you.

                      Selling costs average 10% of the home value. If you sell in 5 years and inflation is 2% per year in home values, you will be able to sell with no financial gain or loss, you are just out what you paid for property taxes, maintenance, mortgage interest, principal payments, and utilities.

                      Home values are in a buying frenzy right now, and no one knows what the future holds. Prices could continue to rise, or they could fall or even plummet like they did in 2008. On average, home prices go up at the inflation rate over the long run, but they have huge gyrations over the shorter term.

                      Please be aware, with a zero down loan you initially become a prisoner in that house. If you don't like the job, if your marriage doesn't work out, or if you want to move for any reason whatsoever, plan on bringing 10% of the value of the home in cash to the closing table. So if you are looking at a 300k home, you will need to pay $30,000 to sell it if you cannot get a contract for more than you paid for the house. Let's consider mortgage rates go up to 6%, the inflated asset conditions that exist today end, and you can only sell the home for 250k. You would then need to bring $80,000 to the closing table to allow you to sell the house ($30k in selling costs and $50k to pay off the bank). If you don't have the cash available to pay at closing, again you are a prisoner to the house and you cannot sell it. 50% of new attending physicians decide to make a change and end up leaving their first job. Do you have enough knowledge to know that this possibility does not apply to you?

                      We signed the contract to buy our first house 10 months after finishing fellowship. I knew I liked the job and I ended up staying in that job for decades. It worked out well for us.

                      An unfortunate friend signed a non-compete with his group, hated the job, and was forced to move out of state due to the onerous non-complete. He sold his newly purchased home for a huge loss after only 1.5 years. It was a very painful time for them, the bad group, an abusive call schedule that he was trying to endure, the huge financial hit to sell the new home, and the forced move far away from family to regain his professional sanity.

                      Best of luck with your decision!
                      This is extremely helpful. I haven't seen it laid out like this. Thank you!

                      Comment


                      • #12
                        Originally posted by nephron View Post
                        The main thing that you have wrong is the assumption that you will finish your 3 year contract there and want to stay beyond. A purchased house will tilt any decision about staying or going into staying and could more adversely effect your financial career then the loss associated with just buying the place and moving. It's pretty easy to see from the outside: lets say that there is better job in the next town for you or your spouse that pays 20K more. It's in a better town, closer to family, etc. If you decide to pass on the opportunity because you are into this 5-7 year plan and you would end up losing money by selling your house 2 years after you just moved in, you will actually have ended up losing money in the long run. You could end up doing ok if everything turns out as you expect but most people do not stay in their first job and having a rental instead of owning ends up being a huge benefit when you are contemplating if you should move. There are too many variables occurring after residency to predict where you will be in 5-10 years.
                        This is very helpful. Thanks for your insight.

                        Comment


                        • #13
                          Rent for at least one year.

                          Comment


                          • #14
                            I think one thing you don't realize is that it can take a while to figure out where you actually want to live in a town. We moved once a year for 3 years in residency. But finally found exactly where we wanted to be. So when we finished and I stayed on as faculty, we bought in the right location for us. Moving to a new city, I'd rent for a year just to get to know the place. Plus gives you time to figure out if the job will actually work without getting locked down. Good luck!

                            Comment


                            • #15
                              I moved to an area that I loved after residency, only to hate the group and leave in 1 year. Cost me thousands to get out. I couldn’t practice there due to restrictions in the contract. I would wait until partner status. A lot can change in a few years. You first 20 plus years of a mortgage is basically interest only so you are not purchasing much equity anyway. Only if the value of the house goes up will you have increase equity. Also there is nothing like calling some one else to fix something when it is broken.

                              If it will make you happier go for it. If you think it is a big financial win, I would think again.

                              Also, if interest rates go up, the value is likely to go down.

                              Comment

                              Working...
                              X